This Recovery is NOT Real But Would You Like To Buy My House?

Americansâexcept Republicans of courseâ would really like to believe that the recovery is finally here. I mean, after five years of high unemployment, the GOP obsession with government deficits and a disappearing middle class, a bona fide recovery would make millions of Americans, as well as a faltering global economy, feel more at ease.

Thatâs why some cautiously optimistic economic data this week give the impression to some as having messianic importance, in the ever-optimistic belief that higher consumer confidence and rising home prices will deliver us from economic evil.

But evilâs power is the power of illusion. Thatâs why the GOP is so good at it. Thatâs why FOX News is the embodiment of innuendo and scare tactics. And, in this case, that is also the power of the positive economic data.

Consumer Confidence is Not Always Realistic

Take the consumer confidence numbers, which are measured every month by the Conference Board and act as one of the more foolish hinges on which to hang our hopes. Consumer confidence in May jumped to 76.2, on a scale of 100. In the accepted analysis, that indicates that consumers believe the economy is improving. Itâs also a grand lesson in the ill-advised notion of believing in the legitimacy of consumer confidence. As history shows, countries and people have long been confident when they had no raison dâÃªtre to be so.

For instance, the consumer confidence numbers themselves are not as confident as they seem. As Michael Santoli at Yahoo Finance points out, the average consumer confidence number during a recession is about 79, and even with our recent boost, weâre still lagging below that low bar.

There is more evidence that Americans lack psychic economic aptitude. The May data shows the highest measure of consumer confidence since February 2008. That was a time in which a housing crash was already in progress, and only a month before Bear Stearns buckled and confirmed that the country was in a financial crisis. At least six months before that, in August 2007, three major hedge funds invested in subprime real estate had to be bailed out by the French bank BNP Paribas, and the Federal Reserve and other central banks started pumping $300bn into the global banking system. Any collective confidence back in February 2008 was imprudent and unsuspecting of the crisis that had already started in the higher rungs of finance.

Similarly, the idea of a strengthening recovery is naÃ¯ve with some bubble-some activity, including the dubious and sudden rise in housing prices.

Housing prices have risen at the fastest rate in seven years, as the Case-Schiller Index of national housing prices showed today. However, the sources of that rise â as with all sudden booms â are suspect. While house prices are rising, incomes, purchasing power and lending are flat if not declining.

The housing recovery, for instance, seems to be just another stage of the foreclosure crisis. Note that the areas where house prices have risen the most â Arizona, Las Vegas and California â are all areas that were decimated after the 2008 bubble burst. So pry between the boards of the housing recovery and the termites start crawling out.

The house-flippers, the financial institutions, and the foreclosure players are scurrying onto the same street corners as whenever there is a boom.

In this case, they are perpetuating the boom themselves. House-flipping in California has reached levels not seen since 2005, according to the Wall Street Journal.

This rise in price is as artificial as the stock market is overvalued. Housing, like most products not being propped up by GOP-backed corporate welfare subsidies, reacts predictably to the laws of supply and demand. When supply decreases â when there are fewer homes on the market â then prices will rise. This is what is happening now.

There is evidence that lenders are controlling the housing supply by reducing the number of houses for sale. Last year, AOL Real Estateâs reporting suggested that as many as 90% of available properties were not even really on the market, but just polished for sale and being held back to keep supply low.

Then, last month, three major banks, including Citigroup and Wells Fargo, suddenly and simultaneously halted all their sales of homes in foreclosure; this also reduced the supply of homes on the market. The reduction in housing supply, then, is largely artificial, designed by the banks and institutions that hold thousands of houses and thus have the most to gain from higher house prices.

The result is what walks, talks, and quacks like a housing recovery, but is, in fact, foolsâ gold. The ratings firm Fitch, issued a warning that the alleged recovery in housing is moving too fast and could reverse.

There is one thing that housing prices do accomplish, however: the so-called âwealth effect.â Along with a booming stock prices, higher property values make people feel better-off than they actually are. This then encourages them to go out and spend money.

There are plenty of other problems with the wealth effect idea, but letâs leave it right here: spending real money based on vaporous on-paper wealth is reckless.

Household debt is still high and savings are still low, which has been a relentless problem in the US for years. Median household incomes have collapsed since the recession, indicating that most households are making do with less money.

Robert Reich puts it this way:

âThis is nothing new; itâs just more visible in this un-recovery. You can see by this handy income-distribution chart that over the past 44 years, middle-class incomes have barely budged. So itâs fair to say that if people are spending more, theyâre likely to be shelling out money they donât necessarily have (in the form of credit cards, for instance)â.

That makes sense. There is an unrelenting unemployment crisis in the United States that has been ignored by Congress as well as corporate America. Around 12 million people are unemployed, about 40% of whom have been out of work for six months or more âwhich pretty much makes them unemployable in the near term.

Additionally, poverty is rising so that nearly 15% of Americans are on food stamps. At least Ben Bernanke, the chairman of the Federal Reserve, didnât bother to pretend the recovery is particularly robust.

But If Believing A Recovery Is Underway Makes Us Feel Good Whatâs the Harm?

Iâll tell you why. The reason to stay skeptical of good times a-coming is that an economic recovery can â and is â used to package a lot of political bullshit. As long as enough people believe a recovery is occurring, Congress can keep ignoring the unemployment and equality crises while ginning up imaginary problems like the plague of corporate tax rates. If Americans believe weâre in a recovery, CEOs can keep claiming that they donât need to invest in the United States or hire American workers.

A recovery also allows real estate agents and banks to tell Americans that they canât borrow money for the home they want, that they canât participate in the housing market, while private investors scoop up as much as they can at virtually zero interest. A recovery allows lawmakers to pretend that their destructive policies of deficit cutting and austerity were productive, rather than destructive.

A mythical recovery, in short, gives cover to a lot of scuzzy con men hoping that Americans wonât look behind the refrigerator and see all the roaches hiding back there.

Maybe when the absurd illusion of a âbetter economyâ is gone, lawmakers and CEOs may be forced to stop taking advantage of the myth of a recovering economy and actually start working to create the reality of it.

But with this bunch of weak leaders in Washington, from Harry Reid to John Boehner, I say itâs time to let the representatives of the people with the biggest balls take the reins. Like Elizabeth Warren is doing. Like Kirsten Gillibrand is doing. Like Claire McCaskill is doing.

Please Hillary, I apologize for buying into the Obama myth. Please show these weak-ass men how itâs done.